Apple’s New Video Service – How Many Subscription Services Can We Eat?

Will we subscribe to Apple’s forthcoming subscription video on demand (“SVOD”) service simply because it’s Apple? Apple plans to release various service bundles later this year that will contain video and news content. For purposes of this discussion let’s focus on video content where the name of the SVOD game is “content quality”. At launch, it is expected that most video content on Apple’s platform will be from partners. Over time Apple will include Apple-created content. Apple is investing approximately $1 billion/year in original video content, child’s play compared to the $13 billion Netflix invested in content last year.

“Content Quality” is the reason I’m bullish on Disney+, Disney’s forthcoming SVOD service. Disney in my opinion has the strongest IP portfolio in the industry with legacy Disney content, Marvel, Lucasfilm/Star Wars and soon to be Fox/ X-Men. This bodes well for Disney in terms of repeat views of the existing video library as well as grist for the mill regarding new content (remakes and sequels have ruled the day in Hollywood if you haven’t noticed).

Applying the Content Quality principle to Netflix, I’m bearish as to how quickly Netflix will be able to replace Disney content (as the Mouse begins to pull content from Netflix), with quality content of its own. It’s not enough to replace lost Disney content with rubbish content.

Where does this leave Apple? I’m not aware that developing hit original programming is one of Apple’s core competencies.Especially when Tim Cook is giving programming notes. What’s the best way to torpedo a video production? Invite the “suits” to give copious production notes.

What level of demand may Apple generate for this new video service? The answer is nobody knows. Let’s instead focus on the median U.S. family’s household P&L.

source: U.S. Census Bureau, TEK2day

Note: Our $10 month estimate is for Apple created content. The actual cost of Apple’s service will be higher as it will include third-party content, at which point we could take this note in a different direction and run a replacement analysis (swap out traditional cable bundle for Apple bundle plus other streaming services). At the end of the day original content is intellectual property, thus our analysis focuses on the original content component.

Apple’s success in creating a differentiated SVOD service will primarily be a function of its ability to create hit original programming. It’s the only recipe for creating a differentiated content product. Otherwise, Apple’s SVOD service will simply be an Apple-branded version of the many skinny TV packages that are available from cable providers or Apple’s version of YouTube TV (which we subscribe to). The only sure thing is that the traditional cable bundle is eroding.

I’m more interested in services where Apple has a scale advantage such as Apple Pay: